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Brazil likely to re-auction CSN's railway project - source

SAO PAULO Oct 13 The Brazilian government is in talks with steelmaker CSN SA to surrender its concession to build and operate the Transnordestina railway, so that a new investor can be found to take up work on the long-delayed infrastructure project, a source in the government said on Thursday.

The source who has participated in negotiations between the government and CSN did not want to be quoted as talks are ongoing.

Without additional investments from the steelmaker or the government in the railway's next segments, which the source said was unlikely, the government plans to negotiate a friendly surrender of the concession by the steelmaker so that the project can be re-auctioned.

CSN, which is struggling to keep its earnings in the black amid Brazil's worst economic downturn in 80 years, has run out of capital to continue work on the railway. And the source said the government would not likely grant an emergency loan to the steelmaker.

"In this scenario, if the company agrees to the negotiated solution, it would return the concession and the government could re-auction it quickly to assure the conclusion of the work," the source said.

The Transnordestina railway project was conceived as a way to expand infrastructure in Brazil's underdeveloped Northeast by linking up farm- and mineral-rich hinterlands with several major port cities in the region.

Work on the railway started in 2006 but has suffered several stops over the years. (Reporting by Leonardo Goy; Writing by Reese Ewing; Editing by Cynthia Osterman)

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